E-marketplace savings will come at a great cost

Companies will spend an estimated $US5.4 million to $US22.9 million each to integrate into online markets over the next five years, according to a newly released report from Forrester Research. The result will be big business generation for e-marketplace vendors and the creation of cost performance pressures on Net markets themselves.

E-marketplaces offer significant opportunities for buyers to lower prices and streamline buying processes, but those savings require a significant investment. Companies can make the most out of these outlays by documenting workflow, leveraging their integration efforts, and pushing their purchases online.

While the promise of lowering the cost of goods entices buyers, Forrester's research shows that e-marketplace participation won't come cheap. In order to capture the benefits, purchasing organisations will need to invest heavily in four areas:

1) Changing internal procurement processes; 2) Integrating marketplaces within internal systems; 3) Purchasing B2B applications; and 4) Paying e-marketplace transaction fees.

These costs, however, won't be the same for all implementations. To gain a perspective on the range of expenses, Forrester modelled procurement activities across three different online purchasing approaches:

Baseline buyers will spend $US5.6 million. Buyers getting started with e-marketplace buying will seek to trim transaction costs associated with processing purchase orders for maintenance, repair, and operations (MRO) goods. The price tag for this approach will be driven by a combination of transaction fees, integration software and internal staffing.

Spot market dabblers will spend $US10.7 million. To help manage costly inventories and avoid shortfall, some purchasing executives will use e-marketplaces to make spot purchases for their direct materials. These buyers will pay the most for new software installation and related consultant fees.

Enterprise enablers will spend $US22.9 million. Some firms use e-marketplaces to manage all of their contracts for all of their indirect and direct materials purchased. For these aggressive buyers, significant costs will come from the large consulting teams needed to implement this complex approach.

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